Caveat emptor is a Latin phrase loosely translated to mean “let the buyer beware.” Real estate in New York State has customarily been transferred under this concept, meaning that the seller is not obligated to disclose property conditions and the onus is on the buyer to discover conditions that may be objectionable. In 2001, this concept eroded somewhat with the enactment of Article 14 of the Real Property Law, known as the property condition disclosure statement law (“PCDSL”). Sellers of residential property were required to complete a lengthy questionnaire concerning property conditions. If the seller preferred not to complete the form, the seller was required to issue a $500 credit to the buyer at the closing, as was customary in downstate counties serviced by our firm.
Recently, Governor Kathy Hochul signed an amendment to the PCDSL that added disclosures concerning flood risks and history. Most significantly, the amendment, which becomes effective on March 20, 2024, removes the seller’s option to issue a $500 credit to the buyer and requires the completion of the questionnaire before the contract is signed. The law explicitly states that it is not a warranty by the seller and does not substitute for inspections that the buyer may conduct. Typically, a real estate agent or experienced real estate attorney will recommend that the buyer hire a professional inspector to evaluate property conditions. Inspectors will often discover concerns such as asbestos in the furnace room. A qualified attorney may integrate repair issues in contract negotiations. Armed with additional information from the completed disclosure form, a buyer may threaten to walk away from a transaction without additional contractual concessions.
The new law provides that knowingly false or incomplete statements made by the seller can subject the seller to claims after the closing. This is a departure from standard New York law whereby the buyer’s acceptance of the deed at the closing is deemed to be full acceptance of any property conditions, whether known or unknown to the buyer.
Sellers are not required to investigate conditions or remove walls to complete the questionnaire and are only to disclose matters of actual knowledge. There is an option in the form to state “unknown” or “not applicable.” This alleviates the concerns that some sellers may have as to disclosures required of older properties that may have been owned by several parties previously. The seller may only know what he experienced as a property owner, rather than conditions experienced by prior owners. However, a seller is required to present an amended disclosure if she acquires additional knowledge after the previous disclosure was delivered.
It remains to be seen whether we will experience a more active fall real estate market so that sellers can enter contracts before they are required to complete the questionnaire in a few months. Otherwise, in the usually active spring market, real estate agents and attorneys will need to explain the disclosures required and potentially assist sellers in completing the disclosures without being exposed to potential legal liability.
We will monitor comments that are likely to be made by our fellow real estate professionals and advise our clients as to potential adjustments needed to comply with the legal requirements once the new law becomes effective.